A Chance to Shape the Future of Carbon Pricing?

Last month, the EU carbon emissions price hit a 10-year high. As the price of carbon reached €18 per tonne[1] it prompted many to question what UK carbon pricing policy might look like post Brexit. This uncertainty presents a problem for both generators and suppliers as they attempt to forecast for the years ahead.

THE UK ALREADY ADOPTS A HYBRID APPROACH TO REDUCING EMISSIONS

Carbon pricing within the EU Emissions Trading System (ETS) is a key instrument of decarbonisation. The UK goes even further to support its legally-binding emissions targets. Under the Climate Change Levy (CCL) the Government has implemented the Carbon Price Floor which tops up prices if necessary. The UK-only element of the price floor is capped at £18 until 2020[2] but the future of the ETS element is unclear.

THE GOVERNMENT HAS PROPOSED A RANGE OF OPTIONS

In March 2018, the Minister for Energy and Clean Growth, Claire Perry told Parliament that the UK would remain in the ETS until the third trading phase expires in 2020.[3] This is despite being scheduled to formally leave the EU in March 2019. However, this is yet to be agreed with EU policy makers. Since then, the UK Government has presented leaving the single energy market as an option.[4]

INDUSTRY CANNOT AFFORD TO WAIT AND SEE

Laurence Slade, Chief Executive of Energy UK has said: ‘At present, as we do not know what carbon pricing mechanism the UK will be in, the exposure to carbon costs for that period is undefined which makes it extremely difficult to price any thermal generation and causes deep uncertainty across the market. Uncertainty creates risk and risk has a price.’[5]

PROACTIVE ENGAGEMENT CAN HELP BUSINESSES GAIN CLARITY

Businesses should take this opportunity to engage with stakeholders to achieve clarity for the interm period and influence the policy framework beyond Brexit.

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